FAIR VALUE DISCLOSURES

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price).

In determining fair value, Farmer Mac uses various valuation approaches, including market and income approaches. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. When available, the fair value of Farmer Mac's financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs or unobservable inputs that are corroborated by market data. Pricing information obtained from third parties is internally validated for reasonableness prior to use in the consolidated financial statements.

When observable market prices are not readily available, Farmer Mac estimates fair value using techniques that rely on alternate market data or internally-developed models using significant inputs that are generally less readily observable. Market data includes prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility and prepayment rates. If market data needed to estimate fair value is not available, Farmer Mac estimates fair value using internally-developed models that employ a discounted cash flow approach. Even when market assumptions are not readily available, Farmer Mac's assumptions reflect those that market participants would likely use in pricing the asset or liability at the measurement date.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The standard describes the following three levels used to classify fair value measurements:


Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.


Level 2	Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.


Level 3	Prices or valuations that require unobservable inputs that are significant to the fair value measurement.

Farmer Mac performs a detailed analysis of the assets and liabilities carried at fair value to determine the appropriate level based on the transparency of the inputs used in the valuation techniques. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Farmer Mac's assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument. While Farmer Mac believes its valuation methods are appropriate and consistent with those of other market participants, using different methodologies or assumptions to determine fair value could result in a materially different estimate of fair value for some financial instruments.

The following is a description of the fair value techniques used for instruments measured at fair value as well as the general classification of such instruments pursuant to the valuation hierarchy described above. Fair value measurements related to financial instruments that are reported at fair value in the consolidated financial statements each period are referred to as recurring fair value measurements. Fair value measurements related to financial instruments that are not reported at fair value each period but are subject to fair value adjustments in certain circumstances are referred to as nonrecurring fair value measurements.

Recurring Fair Value Measurements and Classification

Available-for-Sale and Trading Investment Securities

The fair value of investments in U.S. Treasuries is based on unadjusted quoted prices in active markets. Farmer Mac classifies these fair value measurements as level 1.

For a significant portion of Farmer Mac's investment portfolio, including most asset-backed securities, corporate debt securities, senior agency debt securities, Government/GSE guaranteed mortgage-backed securities, commercial paper and preferred stock issued by GSEs, fair value is primarily determined using a reputable and nationally recognized third party pricing service. The prices obtained are non-binding and generally representative of recent market trades. The fair value of certain asset-backed and Government guaranteed mortgage-backed securities are estimated based on quotations from brokers or dealers. Farmer Mac corroborates its primary valuation source by obtaining a secondary price from another independent third party pricing service. Farmer Mac classifies these fair value measurements as level 2.

For certain investment securities that are thinly traded or not quoted, Farmer Mac estimates fair value using internally-developed models that employ a discounted cash flow approach. Farmer Mac maximizes the use of observable market data, including prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility and prepayment rates. Farmer Mac generally considers a market to be thinly traded or not quoted if the following conditions exist: (1) there are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price quotes vary significantly either over time or among independent pricing services or dealers; or (4) there is limited availability of public market information. Farmer Mac classifies these fair value measurements as level 3.

Farmer Mac's investment securities include callable, highly rated auction-rate certificates ("ARCs"), the interest rates on which are reset through an auction process, most commonly at intervals of 28 days, or at formula-based floating rates as set forth in the related transaction documents in the event of a failed auction. These formula-based floating rates, which may at times reset to zero, are intended to preserve the underlying principal balance of the securities and avoid overall cash shortfalls. Accordingly, payments of accrued interest may also be delayed and are ultimately subject to cash availability. Beginning in mid-February 2008, there were widespread failures of the auction mechanism designed to provide regular liquidity to these types of securities. Consequently, Farmer Mac has not sold any of its ARCs into the auctions since that time. All ARCs held by Farmer Mac are collateralized entirely by pools of Federal Family Education Loan Program ("FFELP") guaranteed student loans that are backed by the full faith and credit of the United States. Farmer Mac continues to believe that the credit quality of these securities is high, based on the underlying collateralization and the securities' ratings. To date, Farmer Mac has received all interest due on ARCs it holds and expects to continue to do so.

Farmer Mac classifies its estimates of fair value for ARCs as level 3 measurements. During 2012 and 2011, Farmer Mac used unadjusted quotes from a broker specializing in these types of securities to determine the estimated fair value of these investments as of each quarter end. Through discussions with the broker, Farmer Mac gained an understanding of the assumptions underlying the broker quotes and independently benchmarked those quotes against other dealer price indications. Farmer Mac believes the broker quotes are the best indication of fair value as of the measurement date although there is uncertainty regarding the ability to transact at such levels. Considering there is no active secondary market for these securities, although limited observable transactions do occasionally occur, price quotes vary significantly among dealers or independent pricing services, if provided at all, and there is little transparency in the price determination, Farmer Mac believes these measurements are appropriately classified as level 3.

Net transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no transfers within the fair value hierarchy for fair value measurements of Farmer Mac's investment securities during the first six months of 2012 and 2011.

Available-for-Sale and Trading Farmer Mac Guaranteed Securities and USDA Guaranteed Securities

Farmer Mac estimates the fair value of its Farmer Mac Guaranteed Securities and USDA Guaranteed Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. Farmer Mac classifies these fair value measurements as level 3 because there is limited market activity and therefore little or no price transparency. On a sample basis, Farmer Mac corroborates the fair value of its Farmer Mac Guaranteed Securities and USDA Guaranteed Securities by obtaining a secondary valuation from an independent third party service.

Farmer Mac made no transfers within the fair value hierarchy for fair value measurements of Farmer Mac Guaranteed Securities and USDA Guaranteed Securities during the first six months of 2012 and 2011.

Financial Derivatives

The fair value of exchange-traded U.S. Treasury futures is based on unadjusted quoted prices for identical financial instruments. Farmer Mac classifies these fair value measurements as level 1.

Farmer Mac's derivative portfolio consists primarily of interest rate swaps, credit default swaps and forward sales contracts on the debt of other GSEs. Farmer Mac estimates the fair value of these financial instruments primarily based upon the counterparty valuations. Farmer Mac internally values its derivative portfolio using a discounted cash flow valuation technique and obtains a secondary valuation for certain interest rate swaps to corroborate the counterparty valuations. Farmer Mac also regularly reviews the counterparty valuations as part of the collateral exchange process. Farmer Mac classifies these fair value measurements as level 2.

Certain basis swaps are nonstandard interest rate swap structures and are therefore internally modeled using significant assumptions and unobservable inputs, resulting in level 3 classification. Farmer Mac uses a discounted cash flow valuation technique, using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved.

As of June 30, 2012, the consideration of credit risk, Farmer Mac's and the counterparties, resulted in an adjustment of $0.7 million to the valuations of Farmer Mac's derivative portfolio. As of December 31, 2011, the consideration of credit risk, Farmer Mac's and the counterparties, resulted in an adjustment of $0.2 million to the valuations of Farmer Mac's derivative portfolio. See Note 1(c) and Note 4 for further information regarding Farmer Mac's derivative portfolio.

Nonrecurring Fair Value Measurements and Classification

Loans Held-for-Sale

Loans held for sale are reported at the lower of cost or fair value in the consolidated balance sheets. Farmer Mac internally models the fair value of loans by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. The fair values of these instruments are classified as level 3 measurements. As of June 30, 2012 and December 31, 2011, the fair values of loans held for sale exceeded their cost amounts. Accordingly, Farmer Mac recorded no adjustment to report these loans at the lower of cost or fair value.

Loans Held for Investment

Certain loans in Farmer Mac's held for investment loan portfolio are measured at fair value when they are determined to be impaired. Impaired loans are reported at net realizable value (fair value less estimated cost to sell). The fair value of the loan generally is based on the fair value of the underlying property, which is determined by third-party appraisals when available. When third-party appraisals are not available, fair value is estimated based on factors such as prices for comparable properties in similar geographical areas and/or assessment through observation of such properties. Farmer Mac classifies these fair values as level 3 measurements. Farmer Mac uses net realizable value as a reasonable estimate of fair value in the tables below.

Real Estate Owned

Farmer Mac initially records REO properties at net realizable value and subsequently records them at the lower of carrying value or net realizable value. The fair value of REO is determined by third-party appraisals when available. When third-party appraisals are not available, fair value is estimated based on factors such as prices for comparable properties in similar geographical areas and/or assessment through observation of such properties. Farmer Mac classifies the REO fair values as level 3 measurements. Farmer Mac uses net realizable value as a reasonable estimate of fair value in the tables below.

Fair Value Classification and Transfers

As of June 30, 2012, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $6.1 billion whose fair values were estimated by management in the absence of readily determinable fair values (i.e., level 3). These financial instruments measured as level 3 represented 51 percent of total assets and 70 percent of financial instruments measured at fair value as of June 30, 2012. As of December 31, 2011, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $5.9 billion whose fair values were estimated by management in the absence of readily determinable fair values. These financial instruments measured as level 3

represented 49 percent of total assets and 72 percent of financial instruments measured at fair value as of December 31, 2011.

The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2012 and December 31, 2011, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value:



Assets and Liabilities Measured at Fair Value as of June 30, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	—	$	—	$	59,707	$	59,707
Floating rate asset-backed securities	—		173,299		—		173,299
Floating rate corporate debt securities	—		86,627		—		86,627
Fixed rate corporate debt	—		57,757		—		57,757
Floating rate Government/GSE guaranteed mortgage-backed securities	—		762,367		—		762,367
Fixed rate GSE guaranteed mortgage-backed securities	—		2,686		—		2,686
Floating rate GSE subordinated debt	—		55,839		—		55,839
Fixed rate GSE preferred stock	—		86,792		—		86,792
Floating rate senior agency debt	—		25,066		—		25,066
Fixed rate senior agency debt	—		178,975		—		178,975
Fixed rate U.S. Treasuries	1,005,906		—		—		1,005,906
Total available-for-sale	1,005,906		1,429,408		59,707		2,495,021
Trading:
Floating rate asset-backed securities	—		—		1,430		1,430
Total trading	—		—		1,430		1,430
Total Investment Securities	1,005,906		1,429,408		61,137		2,496,451
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farmer Mac I	—		—		3,223,332		3,223,332
Farmer Mac II	—		—		29,899		29,899
Rural Utilities	—		—		1,191,236		1,191,236
Total Farmer Mac Guaranteed Securities	—		—		4,444,467		4,444,467
USDA Guaranteed Securities:
Available-for-sale	—		—		1,418,638		1,418,638
Trading	—		—		146,825		146,825
Total USDA Guaranteed Securities	—		—		1,565,463		1,565,463
Financial derivatives	—		36,894		—		36,894
Total Assets at fair value	$	1,005,906	$	1,466,302	$	6,071,067	$	8,543,275
Liabilities:
Financial derivatives	$	—	$	161,624	$	967	$	162,591
Total Liabilities at fair value	$	—	$	161,624	$	967	$	162,591
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	12,541	$	12,541
REO	—		—		1,296		1,296
Total Nonrecurring Assets at fair value	$	—	$	—	$	13,837	$	13,837



Assets and Liabilities Measured at Fair Value as of December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	—	$	—	$	60,213	$	60,213
Floating rate asset-backed securities	—		178,560		—		178,560
Floating rate corporate debt securities	—		73,833		—		73,833
Floating rate Government/GSE guaranteed mortgage-backed securities	—		764,038		—		764,038
Fixed rate GSE guaranteed mortgage-backed securities	—		3,360		—		3,360
Floating rate GSE subordinated debt	—		52,562		—		52,562
Fixed rate GSE preferred stock	—		84,878		—		84,878
Fixed rate corporate debt	—		38,699		—		38,699
Fixed rate commercial paper	—		10,000		—		10,000
Fixed rate U.S. Treasuries	799,266		—		—		799,266
Senior agency debt	—		117,285		—		117,285
Total available-for-sale	799,266		1,323,215		60,213		2,182,694
Trading:
Floating rate asset-backed securities	—		—		1,796		1,796
Total trading	—		—		1,796		1,796
Total Investment Securities	799,266		1,323,215		62,009		2,184,490
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farmer Mac I	—		—		2,807,627		2,807,627
Farmer Mac II	—		—		35,599		35,599
Rural Utilities	—		—		1,446,046		1,446,046
Total Farmer Mac Guaranteed Securities	—		—		4,289,272		4,289,272
USDA Guaranteed Securities:
Available-for-sale	—		—		1,279,546		1,279,546
Trading	—		—		212,359		212,359
Total USDA Guaranteed Securities	—		—		1,491,905		1,491,905
Financial derivatives	—		40,250		—		40,250
Total Assets at fair value	$	799,266	$	1,363,465	$	5,843,186	$	8,005,917
Liabilities:
Financial derivatives	$	—	$	158,689	$	1,335	$	160,024
Total Liabilities at fair value	$	—	$	158,689	$	1,335	$	160,024
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	10,118	$	10,118
REO	—		—		1,296		1,296
Total Nonrecurring Assets at fair value	$	—	$	—	$	11,414	$	11,414

The following tables present additional information about assets and liabilities measured at fair value on a recurring basis for which Farmer Mac has used significant unobservable inputs to determine fair value. Net transfers in and/or out of level 3 are based on the fair values of the assets and liabilities as of the beginning of the reporting period.



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2012
	Beginning Balance			Purchases		Sales			Settlements			Realized and Unrealized Gains/ (Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehensive Income			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	58,868		$	—	$	—		$	—		$	—		$	839		$	59,707
Total available-for-sale	58,868			—		—			—			—			839			59,707
Trading:
Floating rate asset-backed securities(1)	1,646			—		—			(239		)	23			—			1,430
Total trading	1,646			—		—			(239		)	23			—			1,430
Total Investment Securities	60,514			—		—			(239		)	23			839			61,137
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farmer Mac I	3,008,223			200,000		—			(1,007		)	—			16,116			3,223,332
Farmer Mac II	36,129			5,327		(5,327		)	(5,787		)	—			(443		)	29,899
Rural Utilities	1,345,509			—		—			(150,000		)	—			(4,273		)	1,191,236
Total Farmer Mac Guaranteed Securities	4,389,861			205,327		(5,327		)	(156,794		)	—			11,400			4,444,467
USDA Guaranteed Securities:
Available-for-sale	1,328,702			160,286		—			(69,775		)	—			(575		)	1,418,638
Trading(2)	184,397			—		—			(34,463		)	(3,109		)	—			146,825
Total USDA Guaranteed Securities	1,513,099			160,286		—			(104,238		)	(3,109		)	(575		)	1,565,463
Total Assets at fair value	$	5,963,474		$	365,613	$	(5,327	)	$	(261,271	)	$	(3,086	)	$	11,664		$	6,071,067
Liabilities:
Financial derivatives(3)	$	(1,225	)	$	—	$	—		$	—		$	258		$	—		$	(967	)
Total Liabilities at fair value	$	(1,225	)	$	—	$	—		$	—		$	258		$	—		$	(967	)


(1)	Unrealized gains are attributable to assets still held as of June 30, 2012 and are recorded in (Losses)/gains on trading assets.


(2)	Includes unrealized losses of $2.4 million attributable to assets still held as of June 30, 2012 that are recorded in (Losses)/gains on trading assets.


(3)	Unrealized gains are attributable to liabilities still held as of June 30, 2012 and are recorded in Losses on financial derivatives.



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2011
	Beginning Balance			Purchases		Sales			Settlements			Realized and Unrealized Gains/ (Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehensive Income			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	64,539		$	—	$	—		$	—		$	—		$	143		$	64,682
Total available-for-sale	64,539			—		—			—			—			143			64,682
Trading:
Floating rate asset-backed securities(1)	1,690			—		—			(168		)	687			—			2,209
Total trading	1,690			—		—			(168		)	687			—			2,209
Total Investment Securities	66,229			—		—			(168		)	687			143			66,891
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farmer Mac I	1,429,318			300,000		—			(6		)	—			29,893			1,759,205
Farmer Mac II	37,803			981		(1,041		)	(1,134		)	—			(79		)	36,530
Rural Utilities	1,442,793			—		—			—			—			5,437			1,448,230
Total Farmer Mac Guaranteed Securities	2,909,914			300,981		(1,041		)	(1,140		)	—			35,251			3,243,965
USDA Guaranteed Securities:
Available-for-sale	1,063,540			98,464		—			(48,951		)	—			7,344			1,120,397
Trading(2)	274,561			—		—			(26,985		)	1,498			—			249,074
Total USDA Guaranteed Securities	1,338,101			98,464		—			(75,936		)	1,498			7,344			1,369,471
Total Assets at fair value	$	4,314,244		$	399,445	$	(1,041	)	$	(77,244	)	$	2,185		$	42,738		$	4,680,327
Liabilities:
Financial derivatives(3)	$	(1,671	)	$	—	$	—		$	—		$	(84	)	$	—		$	(1,755	)
Total Liabilities at fair value	$	(1,671	)	$	—	$	—		$	—		$	(84	)	$	—		$	(1,755	)


(1)	Unrealized gains are attributable to assets still held as of June 30, 2011 and are recorded in (Losses)/gains on trading assets.


(2)	Includes unrealized gains of $0.3 million attributable to assets still held as of June 30, 2011 that are recorded in (Losses)/gains on trading assets.


(3)	Unrealized losses are attributable to liabilities still held as of June 30, 2011 and are recorded in Losses on financial derivatives.



Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2012
	Beginning Balance			Purchases		Sales			Settlements			Realized and Unrealized Gains/ (Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehensive Income			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	60,213		$	—	$	—		$	—		$	—		$	(506	)	$	59,707
Total available-for-sale	60,213			—		—			—			—			(506		)	59,707
Trading:
Floating rate asset-backed securities(1)	1,796			—		—			(527		)	161			—			1,430
Total trading	1,796			—		—			(527		)	161			—			1,430
Total Investment Securities	62,009			—		—			(527		)	161			(506		)	61,137
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farmer Mac I	2,807,627			400,000		—			(1,015		)	—			16,720			3,223,332
Farmer Mac II	35,599			5,327		(5,327		)	(6,015		)	—			315			29,899
Rural Utilities	1,446,046			—		—			(245,701		)	—			(9,109		)	1,191,236
Total Farmer Mac Guaranteed Securities	4,289,272			405,327		(5,327		)	(252,731		)	—			7,926			4,444,467
USDA Guaranteed Securities:
Available-for-sale	1,279,546			262,011		—			(123,793		)	—			874			1,418,638
Trading(2)	212,359			—		—			(63,386		)	(2,148		)	—			146,825
Total USDA Guaranteed Securities	1,491,905			262,011		—			(187,179		)	(2,148		)	874			1,565,463
Total Assets at fair value	$	5,843,186		$	667,338	$	(5,327	)	$	(440,437	)	$	(1,987	)	$	8,294		$	6,071,067
Liabilities:
Financial derivatives(3)	$	(1,335	)	$	—	$	—		$	—		$	368		$	—		$	(967	)
Total Liabilities at fair value	$	(1,335	)	$	—	$	—		$	—		$	368		$	—		$	(967	)


(1)	Unrealized gains are attributable to assets still held as of June 30, 2012 and are recorded in (Losses)/gains on trading assets.


(2)	Includes unrealized losses of $1.6 million attributable to assets still held as of June 30, 2012 that are recorded in (Losses)/gains on trading assets.


(3)	Unrealized gains are attributable to liabilities still held as of June 30, 2012 and are recorded in Losses on financial derivatives.



Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2011
	Beginning Balance			Purchases		Sales			Settlements			Realized and Unrealized Gains/ (Losses) included in Income		Unrealized Gains/(Losses) included in Other Comprehensive Income			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	64,335		$	—	$	—		$	—		$	—	$	347		$	64,682
Total available-for-sale	64,335			—		—			—			—		347			64,682
Trading:
Floating rate asset-backed securities(1)	1,400			—		—			(550		)	1,359		—			2,209
Total trading	1,400			—		—			(550		)	1,359		—			2,209
Total Investment Securities	65,735			—		—			(550		)	1,359		347			66,891
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farmer Mac I	942,809			800,000		—			(14		)	—		16,410			1,759,205
Farmer Mac II	37,637			2,004		(2,005		)	(2,494		)	—		1,388			36,530
Rural Utilities	1,926,818			—		—			(476,401		)	—		(2,187		)	1,448,230
Total Farmer Mac Guaranteed Securities	2,907,264			802,004		(2,005		)	(478,909		)	—		15,611			3,243,965
USDA Guaranteed Securities:
Available-for-sale	1,005,679			214,811		—			(109,786		)	—		9,693			1,120,397
Trading(2)	311,765			—		—			(62,958		)	267		—			249,074
Total USDA Guaranteed Securities	1,317,444			214,811		—			(172,744		)	267		9,693			1,369,471
Total Assets at fair value	$	4,290,443		$	1,016,815	$	(2,005	)	$	(652,203	)	$	1,626	$	25,651		$	4,680,327
Liabilities:
Financial derivatives(3)	$	(3,390	)	$	—	$	—		$	—		$	1,635	$	—		$	(1,755	)
Total Liabilities at fair value	$	(3,390	)	$	—	$	—		$	—		$	1,635	$	—		$	(1,755	)


(1)	Unrealized gains are attributable to assets still held as of June 30, 2011 and are recorded in (Losses)/gains on trading assets.


(2)	Includes unrealized losses of $2.4 million attributable to assets still held as of June 30, 2011 that are recorded in (Losses)/gains on trading assets.


(3)	Unrealized gains are attributable to liabilities still held as of June 30, 2011 and are recorded in Losses on financial derivatives.

The following table presents additional information about the significant unobservable inputs used in the fair value measurements categorized in level 3 of the fair value hierarchy:



	Fair Value as of			Unobservable	Range
Financial Instruments	June 30, 2012		Valuation Technique	Input	(Weighted-Average)
	(in thousands)
Assets:
Investment securities:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	59,707	Indicative bids	Range of broker quotes	70.0% - 90.0% (80.6%)

Floating rate asset-backed securities	$	1,430	Discounted cash flow	Discount rate	11.8% - 18.2% (15.3%)
				Constant prepayment rate	10%

Farmer Mac Guaranteed Securities:
Farmer Mac I	$	3,223,332	Discounted cash flow	Discount rate	1.1% - 3.2% (1.7%)


Farmer Mac II	$	29,899	Discounted cash flow	Discount rate	1.0% - 3.4% (2.1%)
				Constant prepayment rate	9% - 18% (15%)

Rural Utilities	$	1,191,236	Discounted cash flow	Discount rate	1.3% - 2.5% (2.0%)

USDA Guaranteed Securities	$	1,565,463	Discounted cash flow	Discount rate	1.4% - 5.3% (3.6%)
				Constant prepayment rate	0% - 23% (11%)

Liabilities:
Financial Derivatives:
Basis swaps	$	967	Discounted cash flow	Discount rate	1.0% - 3.1% (1.7%)
				Constant prepayment rate	13% - 23% (18%)

The significant unobservable inputs used in the fair value measurements of Farmer Mac Guaranteed Securities and USDA Guaranteed Securities are prepayment rates and discount rates commensurate with the risks involved. Typically, significant increases (decreases) in any of these inputs in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates. Prepayment rates are not presented in the table above for the Farmer Mac I and Rural Utilities securities structured as AgVantage securities because they do not pay down principal based on amortization schedules but instead have fixed maturity dates when the secured general obligations are due.

Fair Value Option

Accounting guidance on the fair value option for financial instruments permits entities to make a one-time irrevocable election to report financial instruments at fair value with changes in fair value recorded in earnings as they occur. This guidance provides entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

Farmer Mac made no fair value option elections for the six months ended June 30, 2012 and 2011. For the three and six months ended June 30, 2012, Farmer Mac recorded net losses of $3.1 million and $2.1 million, respectively, for changes in fair value of assets previously selected for the fair value option, compared to net gains of $1.3 million and $1.9 million, respectively, for the same periods ended June 30, 2011. These changes in fair value are presented in "(Losses)/gains on trading assets" in the consolidated statements of operations.

Disclosures on Fair Value of Financial Instruments

The following table sets forth the estimated fair values and carrying values for financial assets, liabilities and guarantees and commitments as of June 30, 2012 and December 31, 2011:



	June 30, 2012				December 31, 2011
	Fair Value		Carrying Amount		Fair Value		Carrying Amount
	(in thousands)
Financial assets:
Cash and cash equivalents	$	752,502	$	752,502	$	817,046	$	817,046
Investment securities	2,496,451		2,496,451		2,184,490		2,184,490
Farmer Mac Guaranteed Securities	4,444,467		4,444,467		4,289,272		4,289,272
USDA Guaranteed Securities	1,565,463		1,565,463		1,491,905		1,491,905
Loans	2,577,741		2,540,902		2,971,187		2,894,156
Financial derivatives	36,894		36,894		40,250		40,250
Guarantee and commitment fees receivable:
LTSPCs	22,761		17,518		22,802		15,886
Farmer Mac Guaranteed Securities	22,165		20,604		17,960		15,498
Financial liabilities:
Notes payable:
Due within one year	6,482,643		6,482,817		6,091,573		6,087,879
Due after one year	4,706,115		4,519,192		4,288,670		4,104,882
Debt securities of consolidated trusts held by third parties	186,253		184,499		726,826		701,583
Financial derivatives	162,591		162,591		160,024		160,024
Guarantee and commitment obligations:
LTSPCs	21,957		16,714		22,047		15,131
Farmer Mac Guaranteed Securities	18,897		17,337		14,771		12,309

The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value. This line item is categorized as Level 1 within the fair value hierarchy. Farmer Mac estimates the fair value of its loans, guarantee and commitment fees receivable/obligation, notes payable and debt securities of consolidated trusts held by third parties by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. Because the cash flows of these instruments may be interest rate path dependent, these values and projected discount rates are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts. These line items are categorized as Level 3 within the fair value hierarchy.